claiming costs

[dave0505]

gents. i have a stupid question . im thinking of going self employed.
petrol costs i can write off against tax , right. ie if i earn 20000k a year and my petrol cost was 2k then im only paying tax on 18k its just that im not gonna be vat registered for a while so i maybe i cant write off the vat part on the petrol ?

 

[ianniann]

It is very simple since you aren't registered for VAT. The VAT part of any business expense is still a business expense, money out the door never to return

 

[powell30]

Not quite correct......you can't reclaim the vat directly but the total costs of the business are deductable , including the vat paid. upto the point where you break even......

 

[ianniann]

I'm not sure what you're trying to say, Powell? That you can't claim VAT as a business expense if you're making a profit? Or a loss? What's the break-even thing? Expenses are expenses whether you're making a profit or not. There are special tax and accounting treatments for them if you're making a loss, but assuming you're making a profit then legitimate business expenses are deducted from your total revenue before it becomes taxable income. Even if you make a loss, that can potentially be deducted from other income or from income in future years, but I think you need to see an accountant about that

It is different if you're registered for VAT, but the whole point of this question is what happens if you're not.

 

[powell30]

What i am saying is that vat for a non vat registered business is treated as a busines expense.

Obviously your ability to 'claim' it as such stops once you you break even so unlike a vat registered bu8siness which can continue to reclaim vat regardless of profit/loss a non registered business takes the vat hit once they are in profit (obviously any vat is still an expense but the tax on profits now kicks)

 

[ianniann]

Nope, still lost. I don't know what you are talking about claiming only when you make a loss. You're making it all sound very complicated. Perhaps you are an accountant?

Advice to the OP: forget VAT until you are registered. You only care about what you pay for stuff and what people pay you, and it doesn't matter whether it includes VAT. Obviously you won't charge your customers 17.5% on top of your bill, and most bills you pay will include VAT just like any normal person, but it is all just money in and money out.

 

[Agile]

I dont know why so many find simple concepts so difficult.

You buy £10 of petrol and as non vat reg you can then OFFSET £10 as an expense against profits.

If you ARE vat reg then you can reclaim £1.50 of VAT and then OFFSET £8.50 as an expense against profits ( net of vat ).

If your business always runs at a loss the IR may wonder what you live on and why you bother running a lossmaking business.

Tony

 

[D_Hailsham]

If your turnover is below the VAT threshold (currently £70,000), there is no point registering for VAT if your customers are not VAT registered.

VAT registered customers will be able to offset the VAT you charge against the VAT they charge their customers. But you will still have to charge non-VAT registered customers, including domestic, 17.5% extra, which they can't reclaim.

If you are not VAT registered almost everything you spend for the business, e.g petrol, equipment, is allowed against income tax, including any VAT. Capital items, e.g vehicles, are treated differently.